Whole Foods slows for Amazon

Despite Amazon reporting its second straight quarter of record profitability late October, its robust revenue growth is cooling due to more competition for Amazon Web Services, while its slower-growing Whole Foods Market business faces stiffer competition from the likes of Walmart and specialist stores such as Sprouts Farmers Market, according to USA media reports.

"The company posted on Thursday a profit of $US2.88 billion, about 11 times last year’s figure — extending its profitability streak to more than three years. The company tamed some costs, including headcount and shipping expenses, the latter of which rose only 22 percent compared with over 30 percent in recent quarters," the Wall Street Journal said on October 26.

Total sales in the third-quarter period increased 29 percent to $US56.58 billion, Amazon’s slowest-growing quarter in more than a year and short of the average analyst estimate of $US57.1bn.

In particular, the $US13.7bn purchase of Whole Foods in August 2017 is now starting to draw year-over-year comparisons, deflating the speed of Amazon’s revenue growth. About one month of Whole Foods sales seeped into the year-ago quarter. Compared with second-quarter sales of Amazon’s physical store segment, primarily at Whole Foods, sales fell slightly to $US4.25bn from $US4.31bn three months earlier, the Wall Street Journal said.

A positive is that Amazon has around 30 percent of all online grocery spending in the US and is a clear leader in the online market, according to a recent survey by the Bricks Meets Click consulting firm, boosted by its acquisition of Whole Foods. Another is that its Prime Now click-and-collect service is available in 22 markets.

In comparison, in its third quarter 2018 results posted November 1, Sprouts Farmers Market reported net sales of US$1.3 billion; a 10 percent increase from the same period in 2017, helped by comparable store sales growth of 1.5 percent and two-year similar store sales growth of 6.1 percent, and reliable performance in new stores opened.

Net income for the 13-week third quarter ended September 30, 2018, was US$38 million; a 19 percent increase from the same period in 2017, according to a company release.

“Robust new store productivity, continued product innovation, and strong operations drove a double-digit increase in net sales in the third quarter,” said Amin Maredia, CEO of Sprouts Farmers Market.

During the third quarter of 2018, Sprouts opened 12 new stores: three in California, two in Nevada and one each in Arizona, Oklahoma, Maryland, North Carolina, Texas and Sprouts first stores in the states of Pennsylvania and Washington. Two additional stores have been opened in the fourth quarter, resulting in a total of 315 stores in 19 states as of November 1, 2018.

And Amazon's acquisition of Whole Foods is not helping WFM grab market share from Sprouts Farmers Market, a competitor in a natural and organic groceries market that is growing at around 6-8 percent a year (SPINS data), according to UBS analysts talking with Market Insider.